Did Lower Mortgage Rates Fail to Entice Homebuyers?

The mortgage market managed to post its third consecutive weekly gain, but lower interest rates failed to attract homebuyers. In the latest update from the Mortgage Bankers Association, for the week ended May 16, applications for home loans increased 0.90 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index gained 0.40 percent.

The Refinance Index posted the biggest jump in the report by climbing 4 percent higher from the previous week. However, the Purchase Index dropped 3 percent and was 12 percent lower than the same week one year ago. As the chart above shows, applications have struggled to gain momentum for a sustained period since the housing bubble collapsed.

“Renewed concerns about the state of the global economy, particularly in Europe, led to a flight to quality to US Treasury securities, thereby pushing interest rates down in the US,” said Mike Fratantoni, MBA’s Chief Economist. “Rates on conforming loans hit 6 month lows and jumbo rates hit 12 month lows. Refinance volume picked up somewhat as a result, but it still remains more than 65 percent below last year’s pace. Purchase volume continues to run more than 10 percent below last year’s pace.”

Overall, the refinance share of mortgage activity accounted for 52 percent of total applications, up from 50 percent a week earlier. It was been a rare occurrence to see the refinance share of mortgage activity gain ground. In fact, it has dropped for twelve of the past fifteen weeks.

Interest rates declined across the board. The average rate for a thirty-year fixed-rate mortgage dipped from 4.39 percent to 4.33 percent, the lowest rate since November 2013. Meanwhile, the average rate for a fifteen-year fixed-rate mortgage declined to 3.43 percent from 3.48 percent.

Despite the declines, the housing recovery story will likely draw more skepticism this year as higher prices and stagnant wages continue to weigh on homebuyers. In a recent report, the MBA revealed that the average loan size for purchase applications had reached its highest level in the history of the survey at $280,500.